The commercial real estate market is tanking, and Starwood Capital Group’s $10B Real Estate Investment Trust (REIT) is feeling the pressure. Investors are pulling their money out in droves, leaving one of the real estate industry’s largest funds with two options: sell assets or slow withdrawals. No surprise, they chose the latter — lowering the REIT’s redemption limits from 5% of the value of the fund’s assets every quarter to 1%. This move aims to help the REIT hold steady as the market hits “near-bottom.”
- Office occupancy has never recovered since the pandemic, with 25% of the total supply still vacant — and a full recovery to pre-pandemic levels could take at least five years.
- While Starwood expects conditions to improve, some analysts are pessimistic — warning of cascading regional bank failures as offices face refinancing at much higher mortgage rates.
House of cards? Starwood’s publicly-traded REIT, Starwood Property Trust, is also having a tough year, down 10% year-to-date. However, it’s not alone. Blackstone’s BREIT has seen a similar cash crunch. Critics claim BREIT’s values are inflated anyway, though Blackstone has been working to counter these concerns. Both REITs are betting on imminent rate cuts to stabilize the market — but banks are now moving back their rate cut forecasts.
